Mortgage

On the 27th of January 2015 the Central Bank of Ireland announced the scope of the eagerly anticipated regulations which will apply limits to mortgage lending by regulated financial institutions in Ireland. The new regulations introduce proportionate limits for loan to value and loan to income measurements for both primary dwelling houses and buy to let mortgages.

The new limits are additional to an individual bank’s credit policies and do not remove the responsibility of lenders to lend prudently on a case by case basis. According to the Central Bank of Ireland the key objective of these regulations is “to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future”.

The regulations differ for certain borrowers as follows:

  • First Time Buyers

For first time buyers of properties valued up to €220,000 a maximum 90% loan to value will apply resulting in a 10% deposit requirement.

 First time buyers purchasing a property for more than €220,000 will face the 10% deposit requirement on the first €220,000 but will also be subject to a 20% deposit requirement on any amount over €220,000. A first time buyer purchasing a house for €350,000 will require a deposit of €48,000, being, 10% of €220,000 and 20% of the remaining €130,000.

  • Non – First Time Buyers 

Non-first time buyers under the new regulations are subject to a limit of 80% loan to value which means a deposit of 20% is required. In monetary terms the new regulations will mean that a non-first time buyer purchasing a house for €350,000 will require a deposit of €70,000.  

  • Borrowing for the Purchase of a Buy to Let Property

Under the new regulations buy to let mortgages are subject to a loan to value limit of 70%.

In relation to the size of loans available to property buyers, the loan to income ratio limit has been set at 3.5 times loan to gross income, which means a couple earning an average income of €35,000 each are restricted to borrowing up to €245,000.

Switcher mortgages and housing loans for the restructuring of mortgages in arrears or pre-arrears are not in the scope of the regulations and homeowners in negative equity are also exempt from the new rules.

However, there may be some relief for some borrowers who are unable to satisfy the new regulations in that up to 15% of the loans for principal dwellings could breach the regulations which may prove to be some comfort.

Breda Sheahan is a Solicitor with FitzGerald Solicitors practising in Commercial Litigation.  FitzGerald Solicitors are located at 6 Lapps Quay, Cork.

Please note that you should contact your Solicitor for specific legal advice tailored to your needs as each case is different and the foregoing article is not intended to provide legal advice.

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